BIG supermarket chains in southern Africa are keeping away small local suppliers in the host countries, research findings have shown.
According to the research which examined the obstacles to accessing shelf space in supermarkets in Botswana, South Africa, Zambia and Zimbabwe, the local suppliers have not fully benefited from the mushrooming shopping malls and other chain-store supermarkets.
This is because of many reasons.
The research whose findings have been published in the Quartz Africa Weekly Brief is part of a series of studies titled “Barriers to Entry”, specifically looking at the expansion of regional supermarket chains in southern Africa.
The article draws from studies that look at the spread of supermarkets in the region and how the market power of large firms in different sectors can hold back economic development.
It reveals a range of costs that suppliers incur even before a single unit of their product is sold off supermarket shelves in each country.
Supplier development initiatives have been put in place by supermarkets and governments but have had limited success because they are restricted in scale and scope, and do not have a regional development perspective.
Long payment periods put considerable pressure on suppliers’ cash flow and working capital which is problematic particularly for small suppliers.
Local suppliers in Zambia raised this as a key reason for non-participation in supermarket value chains although it was a concern in all the countries studied.
“Over and above the advertising costs faced by suppliers themselves in creating brand awareness for their products, supermarkets require them to make a host of additional payments,” indicates an article on findings which also appeared in The Conversation.
Generally, large supermarket chains have considerable buyer power, and are often able to control pricing and trading terms with suppliers.
There is also a range of fees such as listing or support fees paid by suppliers to get their products listed in supermarket books.
“These fees can be prohibitive for small suppliers. Estimates of listing fees in South Africa range from US$350 to $3,500 per year for a single product line of a basic food item on the shelf.
“They can go as high as $17,000 to $20,000 for prime till positions for products like sweets and lollipops for a limited time period,” partly reads the report.
In terms of recommendation, there is a need for more co-ordinated, sustainable and regionally focused interventions.
These should aim to reduce barriers to entry by curbing supermarket buyer power and building capabilities of suppliers.